Pfizer refuses to rule out tax inversion deals
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Pfizer refuses to rule out tax inversion deals
By Andrew Ward, Pharmaceuticals CorrespondentAuthor alerts
Pfizer has called for “fundamental reform” of the US tax system – but said it was still interested in acquisitions that would allow it to put offshore revenues beyond the reach of the US taxman in the absence of change.
Ian Read, chief executive, said Pfizer was lobbying in Washington for an overhaul of tax rules that he argued put US companies at a disadvantage. His comments coincided with moves by senior Democrats in both chambers of Congress to cut off more companies that change their domicile from lucrative federal contracts.
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However, Mr Read predicted that reforms would take years to play out, leaving the way clear for Pfizer to consider joining the rush of US companies that have used foreign acquisitions to move their tax domicile overseas.
In May the drugmaker attempted what would have been the biggest of these “tax inversions”, when it bid £69.4bn for AstraZeneca. Its offer was rejected, but many analysts and investors believe Pfizer could make a fresh offer for its UK rival when a mandatory six-month cooling-off period ends in November, or even as early as next month if the UK company instigates fresh talks.
Mr Read declined to discuss that possibility but said Pfizer was “aggressively” pursuing acquisition options of varying sizes and that a tax inversion could be “part of the value proposition” of a potential deal.
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In common with other big US multinationals, Pfizer has billions of dollars in offshore cash that would be exposed to the 35 per cent US corporation tax rate – among the highest in the developed world – if repatriated.
Barack Obama, US president, last week said “corporate deserters” had “renounced their US citizenship” by moving their tax domicile overseas, reflecting rising political pressure to halt the exodus.
Nevertheless, most analysts think a clampdown is unlikely in the near term, with many Republicans echoing Mr Read’s view that any action to prevent inversions should be part of broader reforms to make the US corporate tax system more competitive.
This month AbbVie agreed the biggest inversion to date through a £32bn takeover of Shire. The Chicago-based drugmaker will move its tax home to the UK.
Pfizer is under pressure from investors to make a big acquisition to secure new sources of growth. The New York-based company on Tuesday announced better than expected second-quarter earnings but a 2 per cent drop in revenues to $12.8bn highlighted its difficulties as older drugs lost patent protection.
But on the day Mr Read set out Pfizer’s position, Kenneth Frazier, chief executive of Merck, set himself apart by declaring that he was not interested in deals “solely or primarily for the purposes of tax inversion” and maintained a preference for bolt-on acquisitions over “big consolidation”.
Merck, the biggest US drugmaker by sales after Pfizer, also beat Wall Street expectations with second-quarter results despite a 1 per cent fall in revenues to $10.9bn. Net profits, excluding exceptional items, were $2bn, or 85 cents a share, beating analysts consensus forecast for 81.2 cents.
Pfizer reported net profits, excluding exceptional items, of $3.8bn, or 58 cents a share, compared with Wall Street’s expectation of 56.6 cents.
